Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jiangsu Guomao Reducer Co., Ltd. (SHSE:603915) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Jiangsu Guomao Reducer's shares on or after the 11th of October, you won't be eligible to receive the dividend, when it is paid on the 11th of October.

The company's upcoming dividend is CN¥0.12 a share, following on from the last 12 months, when the company distributed a total of CN¥0.24 per share to shareholders. Based on the last year's worth of payments, Jiangsu Guomao Reducer stock has a trailing yield of around 2.2% on the current share price of CN¥10.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Jiangsu Guomao Reducer paid out 57% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Jiangsu Guomao Reducer generated enough free cash flow to afford its dividend. It paid out 25% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Jiangsu Guomao Reducer's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Jiangsu Guomao Reducer, with earnings per share up 6.3% on average over the last five years. Decent historical earnings per share growth suggests Jiangsu Guomao Reducer has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Jiangsu Guomao Reducer has delivered an average of 14% per year annual increase in its dividend, based on the past four years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Jiangsu Guomao Reducer an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Jiangsu Guomao Reducer paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, it's hard to get excited about Jiangsu Guomao Reducer from a dividend perspective.

So while Jiangsu Guomao Reducer looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Jiangsu Guomao Reducer that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.